State Oil agrees to settle $18.64 million loan dispute with Equity Bank

Dar es Salaam. State Oil Tanzania Limited has reached a settlement in its court case concerning a disputed loan of $18.64 million (more than Sh47 billion) with Equity Banks, including Equity Bank Tanzania Limited (EBT) and Equity Bank Kenya (EBK).

The development comes after State Oil withdrew its court case challenging the loan repayment, which it had claimed was never issued by the banks. Instead, the company has agreed to pay the banks $13.5 million.

Initially, State Oil filed a lawsuit against the banks in the High Court’s Commercial Division, contesting any claims of debt. In response, the banks counterclaimed, alleging that State Oil owed them over $26.47 million for a loan provided on November 21, 2018.

The High Court ruled in favor of State Oil, agreeing that the banks had not lent the claimed amount. However, the banks appealed to the Court of Appeal, which, in a decision on May 16, 2024, overturned the High Court's ruling.

The Court of Appeal, consisting of judges Rehema Mkuye (Presiding Judge), Abraham Mwampashi, and Zainabu Muruke, identified procedural errors in the case’s handling, such as the High Court continuing without amending the claim after adding new defendants.

The Court of Appeal's ruling invalidated the High Court’s decision and ordered that the case be returned to the High Court Commercial Division for a new trial, ensuring compliance with procedural requirements.

Instead of proceeding with the retrial, State Oil has negotiated with the banks and reached an agreement to settle the debt. On August 16, 2024, during a mediation session led by Deputy Registrar Joyce Minde, both parties agreed that State Oil would pay $13.5 million.

The settlement details stipulate that State Oil will pay the amount in two installments: $6.75 million by June 30, 2025, and the remaining $6.75 million by June 30, 2026. The agreement allows State Oil to pay the full amount earlier if preferred.

According to the court order, the banks will release any guarantees once State Oil completes the payments. The agreement specifies that, barring any breaches, the payments will not accrue interest or penalties.

However, if State Oil fails to adhere to the payment schedule, the banks may impose interest and take enforcement actions, including auctioning collateral or seeking court enforcement.

Previously, State Oil had filed the lawsuit against EBT as an agent of EBK, following a loan dispute where EBK claimed $18,640,000 from State Oil.

This settlement marks a significant victory for the banks, which have now won two cases among several disputes with various companies over loan repayments.

Background of the dispute

In 2018, State Oil obtained an $18.64 million loan from Dubai-based Lamar Commodity Trading DMMC, guaranteed by Equity Bank Kenya. State Oil also provided collateral to Equity Bank Kenya, managed by Equity Tanzania.

State Oil either failed or neglected to repay the loan to Lamar, leading Equity Bank Kenya to cover the repayment. Equity Bank Tanzania then claimed the debt on behalf of Equity Bank Kenya, prompting State Oil to seek legal recourse.

State Oil requested the court to order Equity Bank Tanzania to return the collateral documents, claiming no debt owed to the banks.

During the trial, Lamar’s representative testified that State Oil had defaulted on the loan, which was paid by the guarantor, Equity Bank Kenya.

The court, in a ruling by Judge Stephen Magoiga on October 1, 2021, supported State Oil’s claim that it had repaid its debt, ordering the return of the collateral. The banks disagreed and appealed to the Court of Appeal.